Regular savings accounts
With a regular savings account, you’ll need to put in a certain amount of money each month. In return, you’ll get a higher rate of interest. Here’s a look at what’s required to help you decide if a regular savings account is right for you.
Regular savings accounts
If you like the idea of putting away some money each month, then a regular savings account could earn you a higher rate of interest.
It’s a good way to start building a nest egg and get you into the saving habit. But you’ll need to be disciplined and commit to putting in a minimum amount each month.
Let’s take a closer look to help you decide if a regular savings account might be right for you.
What is a regular savings account?
A regular savings account is designed for people who want to save a small amount of money on a regular basis. Rather than putting in a lump sum, you’ll be required to deposit a small amount into your account each month.
In return, you could get a higher interest rate than you would with an ordinary In return, you could get a higher interest rate than you would with an ordinary savings account.
Who are regular savings accounts for?
Also known as a monthly or regular saver account, this type of account might be for you if you:
- want to build up a nest egg
- want to get into the habit of saving a small amount each month
- are saving up for a special event like a holiday or wedding
- want more interest than you can get with an ordinary savings account.
Regular savings accounts tend to have stricter terms and conditions than a straightforward easy-access savings account – for example, most regular savers have rules on how much you can put in and take out. You’ll need to be disciplined and commit to putting aside a certain amount each month for it to work for you.
How does a regular savings account work?
It depends on which account you choose. Terms and conditions tend to vary between banks and building societies. But as a general rule:
- You usually need to deposit a minimum amount each month, which could be as little as £10.
- There’s typically a maximum monthly deposit limit which could be anything from £50 up to £500.
- With some accounts, you might have to save the same amount each month.
- Most banks only let you open a regular saver if you already have a current account with them.
- Most regular savers only last for a limited period – one or two years.
- Some banks may close your account if you don’t make the required monthly deposit – others let you skip one or two months without penalty.
- Some allow you to take money out, but they might lower your interest rate – others don’t allow you to make any early withdrawals at all.
It’s important to read the terms and conditions carefully before choosing the best regular savings account for you, especially if:
- you’re not sure how much deposit you can commit to each month
- you might need access to your money while you’re saving.
If you’d prefer to have more flexibility in how much you save and when you can take the money out, an easy access savings account might be a better option for you.
How much interest can I earn with a regular savings account?
Regular savers can be fixed or variable. The highest AERs (interest rates) tend to be variable, but you’d need to keep a close eye on your account as the interest rate could go up or down. A fixed rate account gives you more certainty, but the interest rate offered might be slightly lower.
Important note: the actual interest you’ll earn will be about half the given rate. That’s because the interest is worked out periodically over the months you save. It’s based on the money in your account at the time, not the final lump sum.
For example:
You open a regular savings account offering 3% interest, then deposit £100 each month over the next 12 months.
At the end of the term you might expect to have £1,200, plus £36 in interest.
In reality, you might only have earned half that amount – around £18.
This is because you’ll have only had the full £1,200 in your account during the last month. In the first month you’ll only earn interest on £100, and so on as the amount grows over the year.
How can I get the best regular savings account rate?
The best way to get a decent rate is to shop around and compare. Just be aware that most banks offer their best regular saver rates to customers who already have a current account with them.
That said, some regular savings accounts are available for all and can be easily opened online.
How much do I have to save each month?
It depends on the account you choose. Most expect a minimum deposit of at least £10 a month, while some insist you save the same amount each month.
If you’re confident you can put in a decent amount each month, it’s worth looking for a bank that offers a higher monthly limit, even if the interest is slightly lower – better 1% AER on £500 than 2% AER on just £50.
| Top tip If you’ve got a large lump sum to invest, you can put it into an easy-access account that starts paying interest straight away. You can then transfer small amounts over to your regular savings account each month. That way, you’ll earn interest on the lump sum, while benefiting from a higher rate on the money you put into the regular saver |
What are the alternatives to a regular savings account?
A regular savings account isn’t for everyone. If you want more flexibility and easy access to your money, while still earning interest, here are a few alternatives to consider:
- Instant access savings account – interest rates are typically lower, but you can take your money out whenever you want.
- High interest current account – an everyday bank account with a debit card for spending that also pays you interest on your credit balance.
- Cash ISA – a tax-free savings account with instant access to your cash. Just make sure it’s a flexible ISA, or you might lose your tax-free allowance on any cash you withdraw.
Find out more about different ways to save.
Frequently asked questions
How long will I get the advertised rate for?
Most regular savings accounts only last for a limited time – typically one or two years. Read the terms and conditions carefully so you know exactly how long the deal lasts.
Once the deal is over, your money is likely to be moved to your current account, which might not offer interest.
Also be aware that variable interest rate accounts can go up and down. Keep an eye on your savings and be ready to switch accounts if the rate drops or you’re coming to the end of your deal.
How will my savings be taxed?
UK taxpayers have a Personal Savings Allowance , which means you can earn a certain amount in interest on your savings without having to pay tax on it.
- If you’re a basic taxpayer (20%), you can earn up to £1,000 in interest each year without having to pay tax on it.
- If you’re a higher-rate taxpayer (40%), you can earn up to £500 in interest each year without having to pay tax on it.
Although it would be wonderful to earn that much in interest, it’s very unlikely at the moment – this means, in nearly all cases, you won’t have to pay any tax on your savings.
What’s the difference between a regular saver and an ISA?
An ISA is a tax-free Individual Savings Account that lets you save up to £20,000 a year without having to pay tax on it. But thanks to the Personal Savings Allowance, you’re unlikely to pay tax on a regular savings account anyway.
Also, an ISA can only be opened by one person. If you want to pool your finances, you can open a joint regular savings account with someone else like your spouse or partner.
Some ISAs may offer higher interest rates, and you can also get regular saver ISAs, so it’s always a good idea to compare and see which could offer you a better return.
Do I have to save each month?
Check out the rules. Some banks let you skip a couple of months without it affecting your interest – others might cut your interest or even close your account if you miss a monthly payment.
How many regular savings accounts can I have?
You can have more than one regular savings account, but not usually with the same provider. Most banks only let you open one regular saver with them at a time.
What is compound interest?
Compound interest is interest earned on interest. Sounds confusing? Say, for example, you put away £1,000 and the interest rate is 2%. After the first year you’ll have £1,020. But after the second year, if the interest rate is the same, you’ll have £1,040.40 – because you will have earned interest on the interest.